Crown Books Expects to File Chapter 11

Crown Books Corp., a bookstore chain hobbled by slowing sales and a cash drain, said Wednesday that it will likely reorganize under federal bankruptcy laws.

Plans by the Landover, Md.-based company to file under Chapter 11 of the U.S. Bankruptcy Code, which could happen within days, was not a surprise. Crown said two months ago that it was in danger of failing and might seek bankruptcy protection.

Under Chapter 11, a company keeps operating but is protected from creditors’ lawsuits while it devises a plan to pay off or reorganize its debts.

Crown operates 180 bookstores in a handful of states, including more than 50 in Southern California, and is known as an aggressive discounter of current bestsellers. But it has lost substantial ground in recent years to rivals Barnes & Noble Inc. and Borders Group Inc., which are thriving after developing bigger, more elaborate stores and sales sites on the Internet.

Crown also had problems with internal controls that monitor its purchases and payments to vendors, and suffered from squabbling among members of the Haft family that formerly controlled Dart Group Corp., which owned 52% of Crown’s stock. Dart also owned a majority stake in the Trak Auto chain of auto-parts stores, and the Shoppers Food Warehouse supermarket chain.

Dart was bought in May by Richfood Holdings Inc., a Richmond, Va.-based food wholesaler. John Belknap, Richfood’s executive vice president, declined to comment except to say Richfood still intends to divest its Crown stake. Crown officials did not return calls seeking comment.

Before Crown’s announcement, there was speculation that Crown might be liquidated or sold, which in recent days had sharply lifted Crown’s sorely depressed stock from less than $1 a share to more than $4. On Tuesday, though, the Nasdaq market halted trading in the stock--at a price of $4.81 a share--pending Crown’s announcement, and trading hadn’t resumed by the close Wednesday.